Japanese venture capitalist Global Brain recently led a Series A investment in cybersecurity startup venture Trillium, which has developed an anti-car hacking technology, SecureCAR, for protecting the in-vehicle net- works (IVN) of automobiles and other transportation equipment.
The Japanese pivot to Southeasia Asia has led to Japanese enterprises making significant investments in the region, ranging from investments in ASEAN infrastructure to acquiring control of Myanmar’s dominant beer maker and a Singapore logistics company.
For the three years ended 2014, Japan was the second biggest foreign investor in the 10 members of the Association of Southeast Asian Nations (ASEAN), after the European Union, data from the ASEAN Secretariat shows. Among then is Global Brain Corporation, which claims to be one of the oldest independent venture capital (VC) firms in Japan.
Sano explained: “We’re a hands-on VC, so we really like to help startups because our venture capitalists are from an industry and operational background, or from an engineering background.”
According to Sano, with Global Brains’ diversity in its professional backgrounds, the company can tap upon the expertise of businesspeople, industry specialists and technologists to valuate technology and business model in specific industry verticals.
Sharing on their investment theme and thesis, Sano elaborated: “We’re looking at companies close to their Series A, with a robust core technology or business model. What does Series A mean? It means that the service or product is validated in certain markets already and the team is aiming at a region-wide or global scale business. We don’t have a specific sector focus and typically invest up to $5 million per round.”
A partnership strategy, where it seeks to understand and partner with key players in market, is apparently its main method of client acquisition.
Currently, Global Brain is focused on the markets of Japan, the US and Asia, though Sano highlighted their current focus on Southeast Asia, as well as their exploration of India and Israel as investment destinations.
While they have conducted investments in Taiwan and Hong Kong, to date Global Brain has not looked at China as an investment destination, reflecting a prevailing trend, as Japanese enterprises seek to offset anemic domestic growth and tapping on cash stockpiles to increase investments in it.
In a statement to Reuters, Singapore-based Mixo Das, an equity strategist at Nomura, explained: “ASEAN just fits the best for Japan. The political relationships are better, growth is there, proximity is there.”
Sano elaborated: “We are trying to create a whole ecosystem and are working with large corporations who are eventually going to invest in and eventually acquire startups – specifically Japanese corporations – who want a robust M&A pipeline and deal ecosystem to tap.”
He observed that Global Brain was exploring partnerships not only with Japanese firms but with local enterprises and large conglomerates with a broad market outreach, noting that startup ventures liked to reach out large enterprises, usually in the context of engaging them as customers or collaborating as partners.
Adding the large enterprises often perceived startups as potential new units, he explained that In terms of facilitating the startup-corporate relationship: ”Global Brain functions as an independent venture capital fund, so we are neutral and can help facilitate these relationships. We like to have corporate or LP utilise us as deal partners, as well as for exploring opportunities in new markets, functioning as a Japanese gateway.”
He added that Global Brain could also function as a bridge for local corporates and large enterprises in Southeast Asia seeking technologies and M&A opportunities in Northeast Asia, which could be quite advanced in nature.
Highlighting the absolute goal of Global Brain being to provider returns to investors, Sano observed that Southeast Asia had a limited IPO pipeline, with most entrepreneurs aiming for a corporate buyout (CBO) or trade sale, noting: “While many participants build an ecosystem, the agenda of venture capitalists is to eventually exit an entrepreneurial venture.”
In light of Rakuten’s latest fund and its implications for the Japanese VC and startup space, Sano shared: “Within the past few years, a lot of corporates started to have, or expand the role of their CVC [corporate venture capital] arm. Each corporate has a different business backbone, which is able to add value to startups in many aspects”.
He continued: “There will be a lot of benefits for startups if there is sufficient venture money supply from different characteristic of professions. Although we Global Brain are an independent venture capital firm, one of our fund is coming from KDDI, one of the biggest telcos in Japan, as well as Mitsui Fudosan, one of the largest real estate developers in Japan. Together with Global Brain, both KDDI and Mitsui Fudosan are able to add tremendous value to startups, backed by its huge customer base and business/asset coverage.”
In light of the joint fund launched by the two firms, Sano reiterated that while the fund’s scope was global in nature, Asia retained it key position as a vital region for Global Brain.
Speaking on Singapore-based Arcstone, which provides an industrial automation, he shared: “As we have a lof of venture capitalists with solid industrial background across numerous sectors, we somehow know how the space is looking like. Arcstone is providing arc.ops, a modular based operating platform for manufacturing, granting high flexibility and visibility to factory operators.
“There still is a lot of room to improve in this region in terms of automation, but it’s also balance between cost and quality always. arc.ops provides toptotch product with reasonable cost, which is not made only for MNCs but also is affordable for SMEs in this region too,” he added.
E-commerce investments & the investment landscape
Given the preponderance of e-commerce ventures in Southeast Asia, where such ventures are experiencing a boom, and the prospects presented, Sano explained: “We have already invested in many e-commerce starrtups across the world. Based on that, we of course intend to invest in EC space too, whereas we have already dealt Luxola, which was acquired by Sephora last year.”
He continued, “In this past several years, there is a lot of e-commerce (companies) born in this region. However, with considering different situation from U.S. or Japan such as logistics, payment etc., we believe only those who can cope with that condition properly will succeed eventually. So we look into EC from not only a commerce’ angle but include logistics, payment or any kinds peripherals together.”
His perspective aligns with a Bain & Co report, which observes:
The region’s fragmented e-commerce landscape, with such complications as the need to set up separate logistics operations, has kept multinationals (including Alibaba and Amazon) from investing heavily in the region. Now, as growth slows elsewhere, some feel they have little choice but to up their game in Southeast Asia. This is prompting companies such as Lazada—which operates in all six countries we’ve included in our research—to fight to protect their market position.
With regards to the current market turbulence and corresponding economic uncertainty, a reaction to markets correcting distortions across various regional markets in the Indo-Asia Pacific, Sano agreed, stating: “Yes we believe so. As our activity is global, including the US, Japan and Asia, we can observe different market situation.
“Asia is fundamentally strong in the long run but to some extent it was heated. This market turbulence situation will lead to a heated situation cooling down . But as far as startups are involved, those which are fundamentally strong in their business won’t be affected so much. We’d like to invest and support the startups which at their core are fundamentally strong.”
He also highlighted the turbulence in public capital markets, which he felt would lead to a decreased deployment of VC funding, saying: “It will affect VC funds too. However, the VC funds which can differentiate or add value to their startups will have less problems. We at Global Brain keep supporting startups expand region-wide or globally, with our structured and dedicated venture development team incl. HR, Finance, Legal/IP, Marketing and Alliance.”